Oil hits three-month peak of $81 a barrel as markets rally
Crude oil surged above $81 (€61.50) a barrel for the first time since May as a rally in global equity markets increased speculation that the economy is strengthening.
Oil jumped as much as 3.2pc after equities climbed on better-than-expected earnings by US and European companies and after the Institute for Supply Management's US manufacturing gauge fell less than forecast. The dollar dropped against the euro, boosting the investment appeal of commodities.
"Oil is following the S&P 500," said Adam Sieminski, chief energy economist at Deutsche Bank in Washington. "Fundamentals don't seem to matter. You don't need to be an oil analyst anymore. You just need to be a stock market analyst."
Crude for September delivery rose $2.48 (€1.88), or 3.1pc, to $81.43 (€61.80) a barrel on the New York Mercantile Exchange. Earlier, it touched $81.50 (€61.85), the highest price since May 5.
Futures gained 4.4pc in July, the biggest monthly gain since March. Prices have risen 17pc in the past year.
The Standard & Poor's 500 Index closed up 2.2pc at 1,126. It jumped 6.9pc in July, the biggest monthly increase since July 2009.
The Dow Jones Industrial Average had advanced 208, or 12pc, to 10,674 by the close.
The MSCI World Index, a gauge of equities in 24 developed nations, climbed 2.1pc to its highest level since May 13. European stocks rose to a three-month high on gains among banks and basic-resource producers.
"Equities did well in July and profits are generally okay, so people are feeling bullish across the board," said Michael Lynch, president of Strategic Energy & Economic Research in Winchester, Massachusetts. The ISM's manufacturing gauge fell to 55.5 in July from 56.2 a month earlier, according to the Arizona-based group.
Economists had forecast that the measure would drop to 54.5, according to the median of 74 projections in a Bloomberg News survey. Estimates ranged from 52.5 to 56. A reading greater than 50 points to expansion.
The dollar weakened by 0.7pc to $1.3137 per euro from $1.3052 last Friday in New York.
"As long as the US dollar is weaker, the US interest rate is lower, people may take the risk of investing money in commodities," said Tetsu Emori, a commodity fund manager at Astmax Co in Tokyo. "I'm quite positive on the market."
The Reuters/Jefferies CRB Index of 19 commodities advanced 1pc to 277.12, the strongest level since May 3. Sixteen of the commodities increased, led by wheat, heating oil, crude and gasoline.
Brent crude for September settlement gained $2.54 (€1.92), or 3.3pc, to $80.72 (€61.24) a barrel on the London-based ICE Futures Europe exchange.